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The business of succession planning for family farms

Mark Bolton is a business lawyer who presented on succession planning at the Australian Sheep & Wool Show in Bendigo on 14 July 2017.

As a born and bred city slicker who wouldn’t do the dishes without a protracted negotiation with my parents about what would be adequate compensation, I have long marvelled at the comradery and wiliness to help that seems to be the foundation of the farming community, particularly family farms.

My first job as a lawyer was up in Horsham where I had the experience of playing football with Kalkee (not during their winning period unfortunately). It was there that I became friends with young farmers who would, during the cropping season, spend days on end running the header back and forth over their parents’ properties. While I suspect they did get some pocket money, they certainly were not getting paid a wage commensurate with their time and effort.

Over the years working as a country lawyer, now in Bendigo, my experiences with family farms has largely been at the other end of the family farm lifecycle, that being the transition to the next generation. Unfortunately, this stage seems to be fraught with issues that often culminate in legal proceedings with disastrous financial and emotional consequences.

The difficulty with family farm succession disputes is that the seeds of expectation are often sown as children and young adults working hard to build the family farm, their farm.

I’ve seen case after case of adult children working on the farm for minimal wage upon the promise, or simply expectation, that one day the farm would be theirs. When that expectation is not satisfied, the family finds itself embroiled in a bitter legal dispute. Suddenly the years of running the header back and forth goes from being a service for the family to an important point in an affidavit about equitable entitlement.

...agree and document the rules on how equity in the farm will be earned and when it will be received.
Mark Bolton

From my experiences with farmers, particularly young farmers, I believe that their motivation is true. They are not working on the farm as a Machiavellian attempt to acquire property, they genuinely want to help the family and the farm.

The problem is expectations, both encouraged by the parents and self-created in the minds of the children. These expectations are often unrealistic, and in the case of multiple-child families, simply impossible.

One way of avoiding these unrealistic expectations is to agree and document the rules on how equity in the farm will be earned and when it will be received. Employee share schemes are nothing unusual in the business world. There are strong reasons to provide good and loyal employees with a share in the business.

Using commercial reasoning and practices to gradually bring the next generation into the business should have resounding consequences for the farm’s, and the family’s, long-term survival and success.

This blog first appeared on Mark Bolton Legal website and has been prepared by Mark Bolton. The information provided is general in nature and should not be relied upon as legal advice.  

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